News Flash: Moody’s Sees Problem With Cyprus Banks, Issues Downgrade

By Michael Aneiro

An urgent message to anyone with bank deposits in Cyprus: The banking system there might be in trouble.

In case you haven’t had a chance to read or watch the news at any time during the past week. Moody’s just informed us that Cyprus banks are in a bit of a pinch, downgrading those banks’ deposit and senior debt ratings to Caa3 from Caa2. From Moody’s:

The actions on the deposit and senior unsecured debt ratings reflect (1) Moody’s expectation of material losses for bank depositors; (2) the risk of further deposit controls once the banks reopen; and (3) the heightened uncertainty regarding the banks’ recapitalisation plans.

The alignment of the banks’ standalone credit assessments at ca reflects underlying risks related to (1) the increased likelihood of material deposit outflows; and (2) the long-term impairment to the banks’ business models resulting from the recent turmoil.

To be fair, the rating was already in junk territory and merely moved deeper into junk, but rating agencies were late to downgrade Cyprus in the first place, and such belated rating actions also reinforce longstanding criticisms that rating agencies are lagging indicators and excel at closing barn doors after horses have bolted.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.